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Withholding Tax Best For Island 2 December 2004

The Manx Government's decision to opt for retention tax (also known as withholding tax) under the EU Savings Directive is the best choice for the Isle of Man and its customers, says Treasury Minister Allan Bell MHK.

Mr Bell was commenting following completion of formal directive procedures with 24 of the EU's 25 Member States, including the Minister's signing of 126 bilateral savings tax agreements in all relevant languages. The outstanding agreement, with Spain, will be signed once internal arrangements in that country are completed.

The Savings Directive is due to come into effect on July 1, 2005. In line with three EU Members [Austria, Belgium and Luxembourg] and the Channel Islands, the Island will introduce a retention tax in respect of interest payments to EU resident individuals, who can opt if they wish for the alternative of disclosure of information to their home tax authority.

The rate of tax to be applied to the interest payment will be 15%. After three years this will increase to 20% and finally after a further three years it will increase to 35%.

Mr Bell the Treasury Minister said:

"The economic well-being of our Island is best served by adopting a retention tax on the same terms as Austria, Belgium and Luxembourg. It provides for a flexible approach by the investor and allows time for the debate to mature on the standard of information exchange to be adopted by all countries.

"All the agreements are fully in line with the Model Agreements approved earlier this year by Tynwald. They are the culmination of four years' work and complete our obligations under the EU taxation initiative."

The text of the Agreements follows that of the EU Directive in large part but with appropriate adaptations and the inclusion of additional safeguards in the provisions in the Agreements for their suspension or termination if certain events come to pass. This conditionality is fundamental to any agreement entered into by the Isle of Man and reinforces the underlying requirement of fairness and equality of treatment.

Mr Bell concluded:

"The Agreements are the outcome of a very close working relationship between the three Crown Dependencies of the Isle of Man, Guernsey and Jersey. That cooperation was reflected in the strength of representations during the negotiations with the EU High Level Group on Taxation and the EU Presidency. It enabled further enhancement of our international personality in negotiating and concluding such agreements, a process which first started with the OECD."

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